Startups need to ensure they have a strong product-market fit if they are to raise the funding they need to scale across borders.
That is according to Keith Jones, co-founder of the Sw7 accelerator, who was speaking last week at the AHUB startups event in Cape Town, South Africa.
He said money was not flowing very well into the system at this moment in time, with Sw7 estimating only up to six per cent of businesses are funded. This is an issue as startups need funding to scale properly.
“If you are a high scale business and you have a good opportunity, it is never a question of if you raise money, it is when you raise. You don’t have a choice,” he said.
Only startups that have got existing traction and proven their product-market fit can really consider themselves to have a chance of raising funding.
“If you have a good idea, a PowerPoint, you’re not part of this conversation. You have to get to market,” Jones said.
Getting to market, at least to one that is big enough, can be tough, however.
“We have an unbalanced ecosystem, so there is no market to scale to,” Jones said. “Innovation has to improve liquidity in the whole ecosystem before the market can lift.”
Ensuring good product-market fit is key, and can create a virtuous cycle which can benefit the whole ecosystem.
“Come up with a product-market fit, that trumps everything. It creates a high-growth business, and you become investable. Then you expand locally, and you expand across borders,” he said.
“Once you know how to scale outside borders you get an African skills pool that knows how to do this. Then you have people that can create a good product-market fit. This is the virtuous cycle.”
He said the money will come if the investment makes sense.
“Everyone that we have met that has a good product-market fit has raised money,” said Jones.
In spite of the difficulties obtaining funding, he said there were many opportunities out there for African tech startups.
“Corporates are reeling. They know there is going to be disruption. We are so disconnected that we are starting to leapfrog. The market is opening up in unpredictable ways, and nobody knows where it is coming,” Jones said.
“European banks are used to living in an unstable environment, but African banks are not. They are reeling at the change that is going to come. They don’t know how to do this and I don’t know if they are going to figure it out.”
Another benefit is that international firms find it difficult to expand into African markets, leaving space for local startups to expand into.
“Our markets are complex and inaccessible. Africa is different. The strategies and approaches of developed markets do not work here. We are largely protected. Local businesses will solve local problems,” Jones said.
“We need better businesses. It comes back to the fundamentals. We’re not getting the volume of quality through. We’re on the right track, but we will probably only see the effects around the end of next year.”